What is a California LLP?
We recently wrote about the features of general partnerships and also about limited partnerships. Under California law, there is one more type of partnership that can formed: a California limited liability partnership (a “California LLP”). A California LLP can only be formed by and among the following licensed professionals:
See information page provided by the California Franchise Tax Board here.
Formal Filing Required for a California LLP
California LLPs are governed by California Corporation Code § 16952 et seq.
Unlike a California general partnership, a California LLP must be organized formally. That is, your California LLP must register with the California Secretary of State by filing Form LLP-1 and paying the requisite filing fee. See here for general information. See also Cal. Corp. Code § 16953(a)-(c).
In addition to registering, a California LLP must provide proof of security for future claims that might arise against the California LLP. Such proof can include evidence of sufficient insurance, sufficient deposit with a financial institution, or proof of sufficient net worth as set out in the statute. Cal. Corp. Code § 16956.
Limits on Partners of California LLP
As noted, only certain licensed professionals can form a California LLP. In addition, all the partners of a California LLP must be members of the same profession, be licensed, and be in good standing.
All Partners May Participate in Running the California LLP
Like a California general partnership, but unlike a California limited partnership, all members of a Califiornia LLP can run and manage the partnership. As we have discussed in other articles, this means that each partner, alone, has the authority to do all of the tasks necessary to run the practice including signing contracts, receiving and depositing money, buying goods and services for the partnership, etc.
California LLP Partners are Not Liable for the Malpractice of Another Partner
With a California general partnership, each and every partner is 100% personally liable. With a California limited partnership, some of the partners have limited liability. With a California LLP, ALL the partners are insulated from personal liability for the debts and/or liabilities of the California LLP. This is part of the reason that California LLPs must provide proof of security for future claims.
In general, California LLPs were created principally to deal with the problem of professional malpractice. For example, if a lawyer makes a mistake in providing legal services, he or she may be sued for professional malpractice. Let’s say that he or she is hired to file a lawsuit, but the lawyer misses the filing deadline and now the client is no longer allowed to sue. The client has a lawsuit against the lawyer for malpractice. Let’s assume further that the client sues the lawyer and a jury awards a judgment of $1 million. If the lawyer was a member of a general partnership, then all the partners would be liable for the $1 million judgment. If the lawyer was part of a professional corporation, the professional associates in the practice would be personally protected from liability. Bus & P C § 6160; CC §2343(3).
By contrast, if the lawyer is a member of the California LLP, only that lawyer is liable for the $1 million judgment in our example. Partners in a California LLP are not responsible for the negligent or tortious conduct of other partners. Cal. Corp. Code § 16306(c)-(e).
A Written Agreement is Needed for a California LLP
As with all partnerships, a written agreement is essential for a California LLP and it should be drafted by an experienced business attorney.
Contact San Diego Corporation Law Today
If you would like more information about California LLPs and drafting partnership agreements for a California LLP, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” for 2017 by SuperLawyers.com. Mr. Leonard has the experience to set up your California LLP, keep your California LLP in good standing and draft your California LLP agreement that covers the unique circumstances of your partnership. Mr. Leonard can review, draft and assist in executing business contracts, and assist with any business-related matter. Mr. Leonard can be reached at (858) 483-9200 or via email.